Correlation Between North American and Black Widow

Can any of the company-specific risk be diversified away by investing in both North American and Black Widow at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining North American and Black Widow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North American Construction and Black Widow Resources, you can compare the effects of market volatilities on North American and Black Widow and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in North American with a short position of Black Widow. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Black Widow.

Diversification Opportunities for North American and Black Widow

-0.78

Correlation Coefficient

North American  Black Widow

Pay attention - limited upside

The 3 months correlation between North and Black is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Black Widow Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Widow Resources and North American is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on North American Construction are associated (or correlated) with Black Widow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Widow Resources has no effect on the direction of North American i.e., North American and Black Widow go up and down completely randomly.

Pair Corralation between North American and Black Widow

Assuming the 90 days trading horizon North American is expected to generate 3.45 times less return on investment than Black Widow. But when comparing it to its historical volatility, North American Construction is 10.46 times less risky than Black Widow. It trades about 0.19 of its potential returns per unit of risk. Black Widow Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Black Widow Resources on October 8, 2024 and sell it today you would earn a total of  0.00  from holding Black Widow Resources or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

North American Construction  vs.  Black Widow Resources

North American Const

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Black Widow Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Widow Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with North American and Black Widow

The main advantage of trading using opposite North American and Black Widow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Black Widow can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Black Widow will offset losses from the drop in Black Widow's long position.

The idea behind North American Construction and Black Widow Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.